Looking for a new home but confused about where to find the best mortgage rates? You're not alone. With hundreds of banks and lenders offering mortgages, it can feel overwhelming trying to determine who truly has the lowest interest rates.
In this comprehensive guide, we’ll cover everything you need to know to secure a low mortgage rate, including:
- Comparing rates across top national lenders
- Understanding the pros and cons of big banks vs. credit unions and online lenders
- How mortgage rates have changed over time and where experts predict they’re headed
- Strategies to improve your chances of getting the lowest rate
- What fees to watch out for when comparing mortgage offers
Let’s dive in!
Mortgage Rate Comparison: Top National Lenders
Most homebuyers start their search looking at big, national lenders like Bank of America, Wells Fargo, and Chase. These banks have the advantage of large marketing budgets, household name recognition, and branches throughout the country. But do they really offer the best rates?
Here’s a look at current rate offers from the top national mortgage lenders:
Bank of America - Offers 30-year fixed rates as low as 6.28%, with 0.7 points paid upfront. Their adjustable rate mortgages (ARMs) start at 5.41%.
Wells Fargo - 30-year fixed rates at 6.34%, with 0.3 discount points. 5/1 ARMs at 5.21%.
Chase - 30-year rates at 6.25%, with 0.625 points. 7/1 ARMs around 5.5%.
Citibank - 30-year fixed at 6.125%, with 1.25 points. 5/1 ARMs start at 4.875%.
As you can see, while the big banks offer competitive rates, none stand out as the clear winners. Online lenders and credit unions often beat them.
Online Lenders vs. Credit Unions
Many homebuyers are skipping the big banks and looking to alternative options like online lenders and credit unions. Why consider these options?
Online lenders like Quicken Loans, loanDepot, and Better.com provide fast and convenient access to mortgage rates. Without physical branches, they have lower overhead costs that they can pass on as savings to you. Expect about a 0.5% lower rate from online lenders compared to large banks.
Credit unions are non-profit, member-owned cooperatives. Since they don’t have shareholders, they return profits to members in the form of better rates and lower fees. On average, credit union mortgage rates are 0.25 to 0.5% less than big banks.
How Mortgage Rates Have Changed Over Time
Mortgage rates fluctuate daily, but analyzing longer term trends provides useful context on where they’ve been and where they might go.
Rates hit extraordinary lows in 2020 and 2021 due to the COVID-19 recession, with 30-year fixed mortgages dipping below 3% for the first time ever. As the economy has recovered, the Federal Reserve has raised interest rates, pushing mortgage rates back up.
![Chart showing mortgage rate trends over past 5 years][]
30-year fixed mortgage rate trends over the past 5 years. Source: Freddie Mac
In 2022, rates have climbed over 2 percentage points, from around 3% at the start of the year up to 6.5% currently. Most experts predict rates will continue rising, potentially hitting 7% by early 2023 before plateauing.
Higher rates decrease buying power, so it’s more important than ever to shop around for the lowest rate.
Strategies to Secure the Lowest Mortgage Rate
Beyond just comparing lenders, here are pro tips to improve your chances of qualifying for the lowest mortgage rate possible:
Boost your credit score. Most lenders use your FICO score to determine your rate tier. Scores above 740 qualify you for the best pricing. Pay down debt, dispute errors on your credit report, and limit new credit inquiries.
Increase your down payment. Larger down payments (20% or more) signal lower risk to lenders so they offer better rates in return.
Lower your debt-to-income ratio. Lenders look at your total monthly debt obligations (including the new mortgage payment) vs. your gross monthly income. Keep your DTI below 43% for the best pricing.
Consider an adjustable-rate mortgage (ARM). ARMs start with lower rates than fixed mortgages, making them more affordable initially. Just be prepared for rates to jump after the intro period.
Compare offers from multiple lenders. Each lender has its own pricing algorithms. The only way to find your best deal is to apply and compare loan estimates.
Consider paying points to buy down your rate. You can pay an upfront fee, usually 1 point = 1% of the loan amount, to reduce your interest rate by 0.25%. Do the math to see if it makes sense long-term.
Beware of Fees When Comparing Mortgage Offers
The interest rate isn’t the only cost that factors into your mortgage. Lenders charge fees for originating the loan, appraisal, title insurance, and more. These costs can add up quickly.
When comparing mortgage offers, look closely at the fee estimates. Online lenders sometimes have lower rates but make up for it with higher fees. Know exactly what you’re paying before signing any loan paperwork.
Common fees to watch for include:
- Origination fee – 1% to 6% of loan amount
- Application fee - $75 to several hundred dollars
- Appraisal fee – $400 to $800
- Credit report fee – $25 to $100
- Attorney fees – $1,000+
- Title insurance – 0.5% to 2% of loan amount
The Bottom Line
While big banks market aggressively, you can likely find lower mortgage rates through credit unions, online lenders, or community banks. Focus on improving your credit profile, minimizing debt, and comparing multiple loan estimates to find your best deal.
Monitor rate trends and get pre-approved to pounce when rates dip. With some persistence and the right strategy, you can secure a rate well below the national average.
What has been your experience finding low mortgage rates? Share any tips in the comments below!